MARKING GUIDE
Subject No:
8395F/8672D
Subject Name:
Commercial Law 1
Exam Date:
June 2005
Number of pages:
7
MARKING GUIDE
Part A
20 multiple choice questions worth 1 mark each:
1.
[d]
2.
[b]
3.
[c]
4.
[a]
5.
[a]
2
6.
[b]
7.
[c]
8.
[b]
9.
[c]
10.
[d]
11.
[d]
12.
[c]
13.
[b]
14.
[a]
15.
[c]
16.
[b]
17.
[b]
18.
[c]
19.
[c]
20.
[d]
Part B
Contract Law (20 marks)
10 short answer questions worth 2 marks each:
1.
An invitation to other parties to make an offer. It is not an offer which can be accepted so as
to create a contract.
2.
- A condition is an essential or fundamental term of the contract. A warranty is a less
important non-essential term.
- Breach of a condition entitles the injured party to terminate the contract and/or sue for
damages. The only remedy for breach of warranty is damages.
Note: students only required to explain one difference.
3.
So long as the minor does not lack understanding, the classes of contract presumed binding
include * contract for the benefit of the minor
* contract for sale of property where consideration not manifestly inadequate
3
* contract to buy property where consideration not excessive
* contract which has the prior approval of the court
* contract for investment in government securities
Note: students only required to name one of these contracts
4.
Frustrating events include change of law, destruction of the subject matter, failure of a
condition, government intervention, death or illness in a contract for personal services.
5.
Students may outline any of the rules of consideration from the caselaw.
6.
6 years from the date of breach.
7.
Deed or contract of record
8.
The law presumes that the parties to a social/domestic/family agreement do not intend their
promises be legally binding.
9.
Students may give any example of a void contract, eg. a contract lacking legal intention or
consideration, a contract affected by a common mistake, an illegal contract etc.
10.
Students may name any statute modifying the common law, eg. Trade Practices Act
Part C
Contract Law (20 marks)
Question 1 (10 marks)
Question based on Carbolic Smoke Ball.
(i)
Intention to create legal relations - 5 marks
Students should consider whether the advertisement is merely an advertising puff or an offer, with
intention to create legal relations and pay anyone who performs the conditions of the offer. With
offers made in commercial situations there is a presumption that there is an intention to create legal
contractual relations.
(ii)
Offer and acceptance - 5 marks
The advertisement is an offer to the world at large. Gina accepted the offer when she obtained the
product and used it in accordance with the directions. There is no need to communicate acceptance
with a unilateral contract. The offer and acceptance created a contract.
Question 2 (5 marks)
Contracts Review Act, 1980
Powers of the Court include refusing enforcement, declaring the contract void or varying it in whole
or in part, granting ancillary relief, making orders for injunctions and specific performance.
The Court must consider the public interest and all the circumstances of the contract. Specific
matters to consider include any inequality of bargaining power, any real opportunity to negotiate the
terms, whether a party was reasonably unable to protect his/her interests because of age, health or
mental incapacity, the comparative education, literacy and economic circumstances of the parties,
the physical form and intelligibility of the contract, whether a party obtained independent legal
advice etc before the contract, whether there was any undue influence or unfair pressure.
4
Students should note at least 5 points to earn the full 5 marks.
Question 3 (5 marks)
As this is a contract for personal services, an order for specific performance to enforce the contract
with Great Movies would not be available. The court might however, grant an injunction against
Jerry to enforce the negative promise not to act in films for any other company during the period of
his contract with Great Movies. Students could also consider whether damages is an appropriate
remedy. Cases include Lumley v Wagner and Curro v Beyond Productions Pty Ltd.
Reference to a case is not necessary for students to earn full marks.
5
Part D
Tort (15 marks)
Question 1
(10 marks)
The issue is whether the manager is liable in negligent misstatement to compensate Sammy for his
loss. A person who gives careless advice/information, gratuitously or otherwise, to another person
will be liable where the other person reasonably relies on the advice and suffers loss. In
determining reasonable reliance the court will consider whether

the defendant had special competence etc. to give the advice

the advice was given about a serious matter in serious circumstances

the defendant should have reasonably foreseen that the plaintiff would rely on the
advice and would be likely to suffer loss should the advice turn out to be unsound

the defendant issued a disclaimer
It is arguable that it was reasonable for Sammy to rely on the manager’s advice in these
circumstances. The manager has failed in his duty of care, causing Sammy to suffer loss.
Students must outline the element of negligent misstatement. They should refer to at least one case.
Cases might include Shaddock v Parramatta City Council, MLC v Evatt
(Students not required to consider whether Blimey Insurance may be liable for the negligence of its
employee.)
Question 2
(5 marks)
To succeed in a defamation action the plaintiff must prove:

the material was defamatory

the material identified the plaintiff

the material was published
If these elements are established the defendant will be liable unless a defence can be provided.
Students should outline these elements and consider whether Doug’s review is defamatory – is it
likely to injure Kylie’s reputation by exposing her to ridicule etc.
(Students not required to detail any defences. There may not be any defence on these facts.)
6
Part E
Sale of goods (10 marks)
Question 1
(5 marks)
The Sale of Goods Act, 1923 implies certain conditions into every contract for sale of goods, in
particular:

An implied condition that the goods will be reasonably fit for the purpose for which they
were sold. Dolly bought the bun from a seller whose business it is to sell buns and by
implication, she bought the bun for eating.

An implied condition that the goods are of merchantable quality. This would be a sale
by description and again, Dolly bought the bun from a seller whose business it is to sell
buns. The bun had a defect that made it unfit for its usual purpose.
Damages are available for breach of these conditions.
Cases include David Jones v Willis Grant v Aust. Knitting Mills
Students need not discuss both implied conditions to earn full marks.
Question 2
(5 marks)
A Romalpa clause is a’ reservation of title’ clause which reserves title or legal ownership over the
goods until they have been paid for in full. Romalpa clauses are used by sellers as a form of
protection against the buyer defaulting or becoming insolvent after taking delivery of the goods but
before paying for them. If the buyer defaults in payment, or becomes bankrupt or goes into
liquidation, the seller can repossess the goods.
7
Part F
Trade Practices Act
Question 1
Consumer Protection
(10 marks)
Unfair Practices – 5 marks
(a)
Students should identify possible breaches of:



Section 52 – prohibits corporations engaging in conduct that is misleading or deceptive
or likely to mislead or deceive.
Section 53 – lists particular false representations that are prohibited. They include
representations about standards, quality, and approvals.
Section 56 – prohibits bait advertising – ie advertising goods at a specified price where
the corporation has no reasonable grounds to believe it could supply at that price for a
reasonable period or in reasonable quantities.
Breach of Section 52 is purely civil. Breach of the other sections may attract criminal liability.
Remedies/penalties include damages, fines, injunctions, corrective advertising, ancillary orders etc.
Students should identify at least 2 possible breaches to earn full marks. Students may, but need not,
refer to cases.
(b)
Product Liability – 5 marks
Students should briefly explain that any person who is injured by a defective product is able to
recover compensation from the manufacturer. Goods have a defect if their safety is not such as
persons generally are entitled to expect. The bike in question appears to be a defective product. The
manufacturer will be liable to pay damages unless it can make out one of the available defences.
Students may, but need not, refer to cases.
Question 2
Restrictive Trade Practices
(5 marks)
Section 48 outlaws resale price maintenance, supplying goods or services on condition that they can
only be resold at a minimum price. (Genuine recommended resale prices are permissible.) There is
no requirement to show that the conduct lessens competition – this is assumed. Students to explain
that the conduct of the publishing companies involves a breach of Section 48. Discount Books
could bring an action for damages and/or an injunction.
A relevant case is Ron Hodgson v Westco.
End of Marking Guide